Sunshine Fruit Co. makes its own shipping boxes. The annual cost to make 80,000

Question

Sunshine Fruit Co. makes its own shipping boxes. The annual cost to make 80,000 boxes is: Suppose Mayerhouser offers to sell them boxes for $2.60 per box How much, if any, will Sunshine Fruit save by buying the boxes? Suppose that all the above fixed costs are depreciation for equipment purchased at $600,000 which is at the end of its 10-year life. New replacement equipment will cost $800,000 and haw a 10-year life also. How much, if any, will Sunshine Fruit save by buying the boxes under these circumstances?

Explanation / Answer

b relevant cost of manufacture materials 1.875 labor 0.3125 variable indirect cost 0.2375 total 2.425 cost of buy per unit 2.6 savings per unit -0.175 c revised per unit relevant cost variable cost 2.425 avoidable fixed cost 10 total 12.425 cost of buy per unit 2.6 net cost per unit 7.4

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